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SEZ Failure And Success

SEZ Failure And Success

What are Special Economic Zones (SEZ)?

  • Special Economic Zones (SEZs) are geographically delineated ‘enclaves’ in which regulations and practices related to business and trade differ from the rest of the country and therefore all the units therein enjoy special privileges.
  • The basic idea of SEZs emerges from the fact that, while it might be very difficult to dramatically improve infrastructure and business environment of the overall economy ‘overnight’, SEZs can be built in a much shorter time, and they can work as efficient enclaves to solve these problems.
  • The SEZ Act, 2005, provides the legal framework for establishment of SEZs and also for units operating in such zones.

SEZ Background

  • An SEZ Policy was announced for the very first time in 2000 in order to overcome the obstacles businesses faced.
  • There were multiple controls and many clearances to be obtained before starting a venture.
  • Infrastructure facilities were shoddy and well below world standards in India.
  • The fiscal regime was unstable as well.
  • In order to attract huge foreign investments into the country, the government announced the Policy.
  • The Parliament passed the Special Economic Zones Act in 2005 after many consultations and deliberations.
  • The Act came into force along with the SEZ Rules in 2006.
  • However, SEZs were operational in India from 2000 to 2006 (under the Foreign Trade Policy).
  • A precursor to the SEZs, the Export Processing Zones were set up in India well before. The first EPZ came up in Kandla in 1965 to promote exports. This was the first EPZ not only in India but in all of Asia as well.

Salient features of  SEZs | SEZ Failure And Success 

  • Designated duty-free industrial park to be treated as foreign territory for trade operations, duties and tariffs.
  • Exemption from central excise duty on procurement of capital goods, raw materials, consumables, spares etc. in the domestic market
  • No licence required for import.
  • Exemption from customs duty on import of capital goods, raw materials, consumable spares etc.
  • The units in the park will become net foreign exchange earners within 3 years.
  • Reimbursement of central sales Tax paid on domestic purchase.
  • 100% foreign Direct Investment in the manufacturing sector allowed, except few sectors.
  • Performance of the units to be monitored by a committee headed by Development Commissioner and the participation of Customers.
  • Duty-free goods to be utilized in five years
  • Profits allowed to be repatriated freely without any dividend balancing requirement.
  • No routine examination by Customers of export and import cargo
  • Developed Plots and ready to use build up space
  • No separate documentation required for customs and EXIM Policy

Baba Kalyani Committee  | SEZ Failure And Success 

  • The Baba Kalyani led committee constituted by the Ministry of Commerce and Industry to study the existing SEZ policy of India has recently submitted its report.
  • In June 2018, the committee was tasked to make special economic zone (SEZ) policy compatible with World Trade Organisation (WTO) rules after the US challenged India’s export subsidy programme at the multilateral trade body.
  • India’s SEZ Policy was implemented from April 1, 2000. Subsequently, the Special Economic Zones Act, 2005 was enacted.
  • The commerce ministry has been consistently lobbying with the finance ministry to exempt units in the SEZs from the minimum alternate tax (MAT), imposed on them in 2011.
  • If India is to become a US $5 trillion economy by 2025, then the current environment of manufacturing competitiveness and services has to undergo a basic paradigm shift.
  • The report notes that the success seen by services sectors like IT and ITES (IT enabled services) has to be promoted in other services sector like health care, financial services, legal, repair and design services.

Why SEZ Did Not Get Much Success In India?

  • The land allotted for SEZs is unused, underused and often misused. According to a 2014 Comptroller Auditor General on Performance of Special Economic Zones (SEZ) Report, only 152 out of 392 notified SEZs are operational. Developers did not even undertake any investment on the SEZ land allotted to them for 2 to 7 years.
  • In West Bengal, for instance, around 96 percent of SEZ land is lying vacant. In Andhra Pradesh, a company that did not use 1,036 hectares allotted to them in 2002 was further allotted 1014 hectares in 2012! In many cases, the SEZ land remains underutilised by companies to whom they are allotted. In May 2009, Adani ports acquired 6,428 hectares of SEZ land, out of which the company utilises only 13% of land.
  • In six states, 14 percent of allotted SEZ land was being misused by developers for ‘other commercial purposes’ going against the SEZ Act. Imagine, the land misused in just these states is the size of around 4300 cricket fields – 5402 hectares.
  • There are instances where companies even raised loans on SEZ land that they didn’t use. Three developers acquired SEZ land on lease, kept them unused and took loans up to ₹ 2,211.48 crore against the mortgage of lease-hold SEZ land.
  • SEZ land allotments have not been without controversy, dipping into restricted land – defense, forests and green land. Around 30 hectares of defense land was allotted to SEZ in Andhra Pradesh. In West Bengal, around 60% of the SEZ notified area was in restricted forest land. In Maharashtra, a 10-hectare SEZ land was completely in green zone.
  • It is disappointing to see how our governments and bureaucracy have failed to manage SEZs efficiently. Meant to create jobs, new products and services to benefit people and the economy, SEZs are regrettably being misused, not serving their intended objectives.



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